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Emperor Securities Ltd v Smi Investment (Hk) Ltd And Others

Judgment Cited authorities 2 Cited in Precedent Map Related
Vincent
Judgment Date03 June 2020
Neutral Citation[2020] HKCFI 881
Year2020
Judgement NumberHCA32/2019
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA32A/2019 EMPEROR SECURITIES LTD v. SMI INVESTMENT (HK) LTD AND OTHERS

HCA 32/2019

[2020] HKCFI 881

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 32 OF 2019

____________

BETWEEN

EMPEROR SECURITIES LIMITED Plaintiff
and
SMI INVESTMENT (HK) LIMITED 1st Defendant
SMI HOLDINGS GROUP LIMITED 2nd Defendant
QIN HUI 3rd Defendant
and
FOK HEI YU AND CHOW WAI SHING DANIEL,
THE JOINT AND SEVERAL INTERIM RECEIVERS OF
829,185,517 SHARES IN SMI CULTURE & TRAVEL GROUP
HOLDINGS LIMITED		 Applicants

____________

Before: Deputy High Court Judge Whitehead, SC in Open Court
Date of the Applicants’ Written Submissions: 17 April 2020
Date of the Applicants’ Supplemental Written Submissions: 6 May 2020
Date of the Hearing: 11 May 2020
Date of Decision: 3 June 2020

_______________

D E C I S I O N

_______________

BACKGROUND

1. On 10 January 2020, and after a contested hearing in these proceedings, DHCJ William Wong, SC made the following order (“the Order”):

“1. Pending the final determination of this Action or further Order, Mr Fok Hei Yu and Mr Chow Wai Shing Daniel of FTI Consulting (Hong Kong) Limited of Level 35, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong, be appointed as the receivers (‘Receivers’) to receive 829,185,517 shares in SMI Culture & Travel Group Holdings Limited (‘Subject Shares’ and ‘SMI Culture’) currently held and owned by the 1st Defendant, SMI Investment (HK) Limited and to collect the interests, dividends or profits (‘Income’) arising therefrom, with powers to act jointly and severally.

2. The powers of the Receivers be limited and restricted to the terms set out in Annex I herein.

3. The 1st Defendant do forthwith do all necessary acts and things to:

(a) Transfer and to procure the transfer of the registered title of the Subject Shares to the Receivers; and

(b) Deliver to the Receivers all effects, books and papers relating to the Subject Shares and the Income…”

2. In doing so, the learned Judge, inter alia, made the following observations in his Decision on even date (“the Decision”):

“2.1 ‘…However, I have come to the view that this is a very clear case to appoint an interim receiver over the Subject Shares in order to protect its value.’ (paragraph 22)

2.2 ‘…I am of the view that such complete disregard of the interests of the Plaintiff does not inspire confidence in the existing management of SMI HK and SMI Culture. The Plaintiff is perfectly justified to be concerned that the Subject Shares are in jeopardy.’” (paragraph 25)

3. In these circumstances and perhaps in anticipation that the appointed Receivers may be faced with further obstacles, the learned Judge further directed (in Annex I to his Order) that:

“2. The Receivers shall have the power to do all acts and things necessary for the purpose of complying with this Court Order, and carrying out his functions, including but not limited to each of the following power, namely, to:-

…

(c) Specifically, take control of, exercise or refraining from exercising any or all of the rights to which a registered holder and/or beneficial owner of the Subject Shares is entitled, including but not limited to:

…

(iii) Take steps to nominate and appoint one of the Receivers as a non-executive director of SMI Culture without the need for any further leave or sanction of the Court. Save as the aforesaid, the Receivers may exercise the right to requisition meetings to appoint or remove all or any directors and officers and agents of SMI Culture with the leave or sanction of the Court.

(d) Take all such steps as may be necessary to preserve the value of the Subject Shares;

…

6. The Receivers be at liberty to apply to the Court for any further directions or order.”

THIS APPLICATION

4. The relevant background to this matter is set out in the learned Judge’s Decision. It is not necessary to repeat the same here.

5. The Receivers (the Applicants) with the support of the Plaintiff, now make the following application by Summons dated 12 March 2020:

“1. Leave be granted, pursuant to paragraph 2(c)(iii), Annex 1 to the Order of Deputy High Court Judge William Wong SC filed on 16th January 2020 (‘Order’), to the Applicants to appoint or remove all or any directors and officers and agents of SMI Culture, and to do all things necessary and incidental thereto (including but not limited to requisitioning meeting(s) of SMI Culture, convening such meeting(s) and/or applying to the Supreme Court of Bermuda (‘Bermudan Court’) for orders for such meeting(s) to be called, held and conducted in such manner as the Bermudan Court thinks fit);

2. Leave be granted to Applicants, pursuant to paragraph 6, Annex 1 to the Order, to enter into negotiations for the purpose of entering into agreements to sell all or any part of the 829,185,517 shares in SMI Culture which are subject to the Order. Save that the Applicants shall seek leave or sanction of the Court before entering into any agreements to sell all or any part of the said shares;

3. Costs to be provided for; and

4. There be liberty to apply.”

6. The Applicants by further Summons dated 23 March 2020 seek leave to file and serve the 2nd Affirmation of Fok Hei Yu together with exhibits as per the copy attached thereto and adduce the same as evidence.

7. By further Summons dated 17 April 2020, the Applicants seek leave to file the Affirmation of Chow Wai Shing Daniel (“Mr Chow”) together with exhibits attached thereto.

8. Messrs Deacons who have represented the 1st, 2nd and 3rd Defendants have indicated in a letter to the Court dated 26 March 2020 that their clients will make no submissions in respect of the present application.

9. On 24 March 2020, DHCJ Roxanne Ismail, SC determined that the present application would be heard on documents alone. However, having considered the Applicants’ written submissions, I concluded that the Court would need further assistance from Counsel, and that an oral hearing was necessary. Furthermore, given that the reconstitution of the Board of a public company was sought, I determined that the matter should be heard in open court.

10. Having considered their position, the Applicants in their evidence in support of the current application, have identified the following obstacles to their duties to protect the Subject Shares:

10.1. The Applicants say that they “have essentially come up against a brick wall”, that SMI Culture’s board of directors (“the Board”) has essentially ignored all the letters sent by them and disregarded the fact that they have been appointed over the Subject Shares. They also note that it was only after the issuance of the present application that Mr Chow was appointed as a non-executive director of SMI Culture despite repeated requests by the Applicants.

10.2. The Applicants’ evidence also discloses that on 31 December 2019, following the hearing before DHCJ William Wong, SC but before the handing down of the Decision, SMI Culture announced that the Board was adopting a “Share Award Scheme” whereby shares would be issued to “selected employees” for no consideration and without any conditions or sale restriction. The Board then resolved to grant a total of 263,200,000 shares to 41 selected employees on 17 February 2020 (“the Share Award Scheme”).

10.3. The Applicants further note that out of those 41 “selected employees”, it appears that at least 20 of them must have started working for SMI Culture and related entities some 6 months before their award. The Applicants further contend there can be no justification for the Share Award Scheme considering, in particular, the precarious financial and cash position of SMI Culture.

10.4. The Applicants have also referred to the learned Judges’ observation in the Decision that:

“In fact, under Clause 6.9 of the Share Charge, the Plaintiff is entitled to have all the directors of SMI Culture be removed and SMI Culture has an obligation to procure the appointment of the directors nominated by the Plaintiff to its board.” (paragraph 47)

Hence the Applicants submit that the present application is entirely consistent with the Plaintiff’s contractual rights under Clause 6.9 of the Share Charge.

11. The Applicants now wish to enter into negotiations with potential purchasers of the Subject Shares in view of the current economic conditions and the drop of the share price of SMI Culture, in order to preserve the value of the Subject Shares.

12. I have considered the evidence of Fok Hei Yu in his 1st and 2nd Affirmations dated 12 March 2020 and 23 March 2020 respectively, and the affirmation of Mr Chow in his Affirmation dated 24 April 2020. The evidence discloses that:

12.1. The Applicants, inter alia, sent the following letters to the Board, all of which appear to have been entirely ignored:

(1) By a letter dated...

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